Coming up with the down payment has always been a difficult task, especially for young and first-time buyers. This is particularly true in today’s market where a variety of factors, including student loan debt averaging $30,000 for the 20-something sect, has made saving money even tougher.
As a result, there’s been a significant increase in homeownership financial assistance from parents and grandparents in recent years. Here are some of the ways to help children get into their first home:
Cash for a down payment
Under current tax laws, the annual gift tax exclusion allows an individual to give $14,000 a year to as many recipients as they want without paying a tax on the gift. The key is one individual to one recipient, $14,000 is the max. However, a couple (2 individuals) can each give to a child and the child’s spouse (2 recipients) thereby 4X the amount. For example, a husband and wife could each give an adult child and their spouse a total of $56,000 in one year.
Shared ownership of a home can get complex, especially if the child is getting a mortgage loan and the lender requires the parents to co-sign the mortgage. However, having both the parent and the child on the loan allows the child to establish a credit history and get the tax benefits of ownership, just like the parents.
Shared ownership can be structured in a variety of ways, with the parent providing some or all the down payment and the child paying some or all the mortgage and other expenses.
Purchase the property and let the child lease
In this approach, there are no tax benefits for the child. However, as mentioned earlier, individuals can gift up to $14,000 per person, and this gift doesn’t have to be in the form of cash. A gift could come in the form of a percentage of ownership in the title.
These are all options to help children own their own home. Just keep in mind that any time money and family are involved, it is always wise to consult a tax advisor.
Updated: 30th May 2018